Radatz v. Fed. Natl. Mtge. Assn. , 2014 Ohio 2179 ( 2014 )

[Cite as Radatz v. Fed. Natl. Mtge. Assn., 2014-Ohio-2179.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 100205
REBEKAH R. RADATZ
PLAINTIFF-APPELLANT
vs.
FEDERAL NATIONAL MORTGAGE ASSOCIATION
DEFENDANT-APPELLEE
JUDGMENT:
REVERSED AND REMANDED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-03-507616
BEFORE: S. Gallagher, P.J., Rocco, J., and McCormack, J.
RELEASED AND JOURNALIZED: May 22, 2014
ATTORNEYS FOR APPELLANT
Brian Ruschel
925 Euclid Avenue
Suite 660
Cleveland, Ohio 44115
Patrick J. Perotti
Dworken & Bernstein Co., L.P.A.
60 South Park Place
Painesville, Ohio 44077
ATTORNEYS FOR APPELLEE
J. Philip Calabrese
Richard Gurbst
Squire Sanders (US) L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304
Jeffrey Kilduff
O’Melveny & Myers, L.L.P.
1625 Eye Street, N.W.
Washington, D.C. 20006
SEAN C. GALLAGHER, P.J.:
{¶1} Plaintiff-appellant Rebekah Radatz, individually and on behalf of the certified
class members (collectively “Plaintiffs”), appeals from the trial court’s decision to
dismiss all claims against the defendant-appellee Federal National Mortgage Association
(“Fannie Mae”), based on the claim that the trial court lacked subject matter jurisdiction.
For the following reasons, we reverse the decision of the trial court and remand for
further proceedings.
{¶2} In 2003, Radatz filed a complaint alleging individual and class action claims
against Fannie Mae. Radatz alleged that Fannie Mae failed to comply with R.C.
5301.36(B) and file a satisfaction of a residential mortgage within 90 days from the date
that she and other similarly situated mortgagors satisfied the loan debt. Radatz and the
class, certified in December 2006, each sought to recover statutory damages in the
amount of $250 pursuant to R.C. 5301.36(C). During discovery, it was determined that
the class consisted of well over 100,000 individuals.
{¶3} “Fannie Mae was established in 1938 as a federal agency and was converted
into a private corporation in 1968. * * * ‘[Fannie Mae is] structured as [a] private
[corporation], but [is] federally chartered and play[s] an important role in the national
housing market by making it easier for home buyers to obtain loans.’” Fed. Hous. Fin.
Agency v. Royal Bank of Scotland Group P.L.C., D.Conn. No. 3:11-cv-01383, 2012 U.S.
Dist. LEXIS 116292, 3-4 (Aug. 17, 2012), quoting Judicial Watch, Inc. v. Fed. Hous. Fin.
Agency, 646 F.3d 924, 926, (D.C.Cir.2011). In response to the housing and mortgage
market crisis in July 2008, Congress passed the Housing and Economic Recovery Act of
2008 (“HERA”), creating the Federal Housing Finance Agency (“FHFA”). Id.Congress granted the director of the FHFA conditional authority to place regulated
entities, such as Fannie Mae, into conservatorship or receivership “‘for the purpose of
reorganizing, rehabilitating, or winding up [their] affairs.’” Id., quoting 12 U.S.C.
4617(a). “On September 6, 2008, the Director of the FHFA placed Fannie Mae under
the FHFA’s temporary conservatorship with the objective of stabilizing the institutions so
they could return to their normal business operations.” Id.{¶4} Meanwhile in September 2010, and after Fannie Mae’s unsuccessful attempt
to remove the action to federal court in light of HERA, Plaintiffs began compiling the list
of class members. Plaintiffs completed the list — numbering over 100,000 — in
February 2013 and promptly notified Fannie Mae. Seemingly in response, on March 13,
2013, Fannie Mae filed a motion to dismiss all claims, arguing that the trial court lacked
jurisdiction because of a consent order issued by the FHFA director just four days earlier.
It is undisputed that through the sole directive in the consent order, the FHFA director
decreed that Fannie Mae was to cease and desist violating 12 U.S.C. 4617(j)(4), the
so-called Penalty Bar provision that grants immunity to the FHFA from paying “any
amount in the nature of penalties and fines.” Fannie Mae argued that through 12 U.S.C.
4635(b), the grant of immunity pursuant to 12 U.S.C. 4617(j)(4) became a jurisdictional
concept, and therefore, the trial court lacked jurisdiction to affect any order issued by the
FHFA director. In order to follow Fannie Mae’s logic, it must be determined whether
any damages awarded to the Plaintiffs would necessarily affect the consent order. Fannie
Mae considers the statutory damages pursuant to R.C. 5301.36(C) to be in the nature of a
fine or penalty. In light of Fannie Mae’s argument, the trial court granted the Civ.R.
12(B)(1) motion and dismissed Plaintiffs’ claims with prejudice on the basis that the trial
court was divested of jurisdiction to enter a judgment in their favor against Fannie Mae.
{¶5} Plaintiffs timely appealed the trial court’s decision, advancing two
assignments of error. In the second assignment of error, the Plaintiffs claim the trial
court erred in declining jurisdiction because the FHFA order violated the Plaintiffs’ due
process rights and was otherwise unenforceable. We need not address the second
assignment of error. In their first assignment of error, Plaintiffs contend that neither 12
U.S.C. 4635(b) nor 4617(j)(4) divested the trial court of jurisdiction to resolve the claims,
and therefore, the trial court erred by dismissing all claims against Fannie Mae. We find
merit to Plaintiffs’ first assignment of error. The trial court was not divested of
jurisdiction. Accordingly, any claims advanced in the second assignment of error are
moot.
{¶6} A trial court’s decision on a Civ.R. 12(B)(1) motion to dismiss for lack of
subject matter jurisdiction is reviewed under a de novo standard of review. Rheinhold v.
Reichek, 8th Dist. Cuyahoga No. 99973, 2014-Ohio-31, citing Bank of Am. v. Macho, 8th
Dist. Cuyahoga No. 96124, 2011-Ohio-5495, ¶ 7. The sole question for our
consideration, therefore, is whether the trial court erred in holding that the FHFA consent
order divested the trial court of jurisdiction over the Plaintiffs’ claim for statutory
damages. After reviewing the record and arguments, we must answer that question in the
affirmative.
{¶7} Plaintiffs’ claims against Fannie Mae are predicated on the allegation that,
pursuant to R.C. 5301.36(B), Fannie Mae failed to record the satisfaction of a residential
mortgage within 90 days of the mortgagor satisfying the loan. As a result, Plaintiffs seek
statutory damages in the amount of $250 per individual, injured mortgagor. R.C.
5301.36(C). Fannie Mae argues that pursuant to a federal statute, it is immune from
liability for any penalties or fines provided for in the Ohio Satisfaction of Residential
Mortgage Statute and because the director of the FHFA incorporated the immunity
language of 12 U.S.C. 4617(j)(4) into a consent order, the trial court lacked jurisdiction to
render a judgment upon the merits of Plaintiffs’ statutory claim for damages. Inherent in
that argument is the concept that any damages awarded pursuant to R.C. 5301.36(C) are
in the nature of a penalty or fine.
{¶8} Congress granted the FHFA immunity from liability for any “amounts in the
nature of penalties or fines, including those arising from the failure of any person to pay
any real property, personal property, probate, or recording tax, or any recording or filing
fees when due.” 12 U.S.C. 4617(j)(4). Courts have construed this grant of immunity to
apply to the imposition of fees or penalties against Fannie Mae while under the direction
and control of the FHFA through conservatorship or receivership. 1 Fed. Hous. Fin.
1
We need not address this issue for the purposes of the current case although it was raised by
Plaintiffs in the briefing, and therefore, summarily rely on the interpretation of the statute as provided
by other courts from around the country. The determination of whether Fannie Mae is included in
Agency v. Chicago, 962 F.Supp.2d 1044 (N.D.Ill.2013); Nevada v. Countrywide Home
Loans Servicing, L.P., 812 F.Supp.2d 1211 (D.Nev.2011); Higgins v. BAC Home Loans
Servicing, L.P., E.D.Ky. No. 12-cv-183-KKC, 2014 U.S. Dist. LEXIS 43278 (Mar. 31,
2014). Congress, in establishing the FHFA’s authority pursuant to HERA, further
prescribed that no court “shall have jurisdiction to affect, by injunction or otherwise, the
issuance or enforcement of any notice or order” issued pursuant to 12 U.S.C. 4631 (cease
and desist orders), or to “review, modify, suspend, terminate, or set aside any such notice
or order.” 12 U.S.C. 4635(b).
{¶9} Before addressing the application of the federal statutes to the current facts, it
is important to understand the extent of the FHFA consent order. On March 9, 2013, the
acting director of the FHFA issued a consent order stating as follows:
Pursuant to 12 U.S.C. § 4631 [(cease and desist proceedings)], [Fannie
Mae] and Federal Home Loan Mortgage Corporation (“Freddie Mac”)
(together “the Enterprises”) are hereby ordered to cease and desist from
violating 12 U.S.C. § 4617(j)(4) by paying, for any reason, directly or
indirectly, any fines or penalties imposed by any state mortgage satisfaction
law on the Enterprises for noncompliance. Furthermore, Fannie Mae is
ordered to cease and desist from violation 12 U.S.C. § 4617(j)(4) by paying,
for any reason, directly or indirectly, any amount pursuant to Ohio Code
5301.36 or pursuant to any judgment in connection with the pending
lawsuit styled Radatz v. Fed. Nat’l Mortgage Ass’n, Case No.
CV-03-507616 (Ohio Com. Pleas).
(Emphasis added.) There are two important facets of the FHFA’s consent order. First,
as emphasized in the quoted language, the order states that Fannie Mae is prohibited from
the statutory grant of immunity conferred on the FHFA does not alter the disposition of the current
case. Our resolution of that issue, therefore, is unnecessary for the purposes of this appeal.
paying “any amount” pursuant to R.C. 5301.36(C) based on 12 U.S.C. 4617(j)(4). “It is
well settled that ‘the starting point for interpreting a statute is the language of the statute
itself.’” Oakland v. Fed. Hous. Fin. Agency, 716 F.3d 935, 939-940 (6th Cir.2013),
quoting Gwaltney of Smithfield, Ltd. v. Chesapeake Bay Found., Inc., 484 U.S. 49, 56,
108 S.Ct. 376, 98 L.Ed.2d 306 (1987). “‘[W]hen the statutory language is plain, [the
court] must enforce it according to its terms.’” Id., quoting Jimenez v. Quarterman, 555
U.S. 113, 118, 129 S.Ct. 681, 172 L.Ed.2d 475 (2009). “Analysis of any challenged
action is necessary to determine whether the action falls within the broad, but not infinite,
conservator authority.” Sonoma v. Fed. Hous. Fin. Agency, 710 F.3d 987, 994 (9th
Cir.2013). “[I]f the FHFA were to act beyond statutory or constitutional bounds in a
manner that adversely impacted the rights of others,” nothing in 12 U.S.C. 4617 prevents
courts from delving into the FHFA’s authority to act. In re Fed. Home Loan Mtge. Corp.
Derivative Litigation, 643 F.Supp.2d 790, 799 (E.D.Va.2009).
{¶10} Thus, the language in the consent order cannot be read in isolation from the
statutory language empowering FHFA’s and Fannie Mae’s immunity. The language of
the consent order must be informed by a plain reading of 12 U.S.C. 4617(j)(4), which
grants the FHFA immunity, but in doing so, modifies “any amount” with the descriptive,
“in the nature of penalties or fines.” Accordingly, inasmuch as the consent order states
that Fannie Mae is prohibited from paying “any amounts in connection” with the
underlying case, the extent of the cease and desist order is limited to Congress’s grant of
immunity to the FHFA and Fannie Mae, immunizing Fannie Mae from paying “any
amounts” in the nature of penalties or fines in connection with the underlying case.
Fannie Mae has cited no authority establishing the basis of the FHFA’s authority to
infinitely immunize Fannie Mae from paying any amounts stemming from any actions.
{¶11} Second, and more important, the consent order directly acknowledges the
trial court’s ability to grant a judgment in favor of Plaintiffs and against Fannie Mae
based on a violation of Ohio’s mortgage satisfaction law. In the consent order, the acting
director of the FHFA expressly provided that Fannie Mae must cease and desist from
paying any amount, subject to the modifier, in the nature of fines or penalties, pursuant to
any judgment issued in the “pending” underlying case or any imposition of fines or
penalties pursuant to a state’s mortgage satisfaction laws. In simple terms, the consent
order did not facially prohibit the trial court from entering a judgment against Fannie Mae
in this case or generally imposing damages against Fannie Mae based on R.C.
5301.36(C). Instead, the order acknowledged the possibility of a judgment or imposition
of damages in the pending action and expressed Congress’s intent to limit Fannie Mae’s
liability for paying any amount in the nature of a penalty or fine pursuant to 12 U.S.C.
4617(j)(4). With this understanding, the scope of the party’s arguments, as framed, is
limited to whether any judgment in the trial court in the current case would affect the
consent order, pursuant to 12 U.S.C. 4635(b), or whether a judgment entered would be in
the nature of a penalty or fine levied against Fannie Mae, pursuant to 12 U.S.C.
4617(j)(4), the two jurisdictional bars advanced by Fannie Mae.
{¶12} In this case, the former inquiry is subsumed by the latter. The consent order
merely orders Fannie Mae to cease and desist violating 12 U.S.C. 4617(j)(4). The only
order that would affect the consent order would be an order forcing Fannie Mae to pay
any amount in the nature of a penalty or fine stemming from this particular case. The
prohibition against assessing penalties or fines against the FHFA or Fannie Mae,
however, is not grounds to divest the court of jurisdiction. See Higgins, E.D.Ky. No.
12-cv-183-KKC, 2014 U.S. Dist. LEXIS 43278 (noting that 12 U.S.C. 4617(j)(4)
prohibits the imposition of fines or penalties against Fannie Mae or the FHFA); Chicago,
962 F.Supp.2d 1044 (12 U.S.C. 4617(j)(4), exempts the FHFA from the imposition of
fines and penalties). Neither courts in Higgins or Chicago addressed 12 U.S.C.
4617(j)(4) from a jurisdictional standpoint, and tellingly, Fannie Mae cited no authority
for the proposition that the immunity from liability to pay penalties or fines is
jurisdictional.
{¶13} We acknowledge the fact that Higgins is distinguishable from the current
facts in that the FHFA never issued a consent order to protect Fannie Mae as it did in the
underlying case. We cannot escape the conclusion that the consent order appears to
merely parrot the statutory immunity in an overt attempt to create a jurisdictional issue
through 12 U.S.C. 4635(b), which is not expressly provided for in the statutory scheme
granting the FHFA and, in this instance, Fannie Mae, immunity from paying any amounts
in the nature of penalties or fines pursuant to 12 U.S.C. 4617(j)(4). Nevertheless, this
issue is not currently before this court, and we assume for the sake of this appeal that the
conservator had authority to enter the consent order mimicking the immunity language of
12 U.S.C. 4617(j)(4).
{¶14} In order for a judgment in the underlying case to affect the consent order,
Fannie Mae must assume that the damages awarded pursuant to R.C. 5301.36(C) are in
the nature of a penalty or fine. In interpreting the Ohio General Assembly’s intent, the
Ohio Supreme Court held, however, that
the statutory language is clear: R.C. 5301.36(C) expressly provides that a
mortgagor “in a civil action” may sue for “damages.” To conclude that
R.C. 5301.36(C) creates a penalty, this court would have to delete the term
“damages,” a word used by the legislature, and insert the term “penalty” or
“forfeiture,” words not chosen by the legislature. Doing so would flout our
responsibility to give effect to the words selected by the legislature in
enacting a statute.
Rosette v. Countrywide Home Loans, Inc., 105 Ohio St.3d 296, 2005-Ohio-1736, 825
N.E.2d 599, ¶ 13. In that case, the Ohio Supreme Court faced the issue of whether to
apply the one-year statute of limitations for an action upon a statute for a penalty or
forfeiture, or the six-year limitations period for a statutory liability action. Id. at ¶ 11.
Subsequently, the Ohio Supreme Court clarified that the compensatory damages imposed
by R.C. 5301.36(C) are “more akin to stipulated or liquidated damages” rather than
punitive damages that are meant to punish the wrongdoers. Cleveland Mobile Radio
Sales, Inc. v. Verizon Wireless, 113 Ohio St.3d 394, 2007-Ohio-2203, 865 N.E.2d 1275, ¶
13. In the latter case, the court noted the difference between damages awarded in the
nature of compensatory damages and treble “damages,” which serve a punitive
objective. Id. at ¶ 14.
{¶15} Inasmuch as federal law controls this issue of whether damages are in the
nature of a penalty or fine, in order to determine whether a “particular statutory provision
is penal in nature,” federal courts use a three-tiered analysis: (1) whether the purpose of
the damages is to redress individual or public wrongs, (2) whether the recovery runs to
the individual or the public, and (3) whether the recovery is disproportionate to the harm
suffered. Asklar v. Honeywell, Inc., 95 F.R.D. 419, 423 (D.Conn.1982); Higgins,
E.D.Ky. No. 12-cv-183-KKC, 2014 U.S. Dist. LEXIS 43278, at *13 (also noting that
damages are commensurate with the injury received while a penalty has no reference to
the actual loss sustained by the individual suing for recovery).
{¶16} On this point, the federal district court’s decision in Higgins is instructive.
In that case, Fannie Mae and the FHFA advanced the same arguments: that Fannie Mae is
immune from any judgment because of the immunity from the imposition of fines or
penalties afforded by 12 U.S.C. 4617(j)(4), albeit based on Kentucky’s recording statute
that establishes up to treble damages for any mortgagee’s failure to record assignments of
the mortgage. Higgins at *15. The Higgins court noted that the remedy provided by
Kentucky’s recording statute inured to the affected individual as a form of liquidated
damages for the mortgagee’s violation. Id. In light of that finding, the court denied
Fannie Mae and the FHFA’s motion to dismiss. The federal district court could not only
award damages, but those damages could be imposed against Fannie Mae and the FHFA
because the damages were outside the scope of their statutory immunity. Id.{¶17} In an attempt to deem Ohio’s interpretation of its own statutory award of
damages in conflict with the federal court’s separate analysis used to determine whether
an award is penal or compensatory, Fannie Mae cites Bowles v. Farmers Natl. Bank of
Lebanon, Kentucky, 147 F.2d 425, 428 (6th Cir.1945), and Schaefer v. H.B. Green
Transp. Line, Inc., 232 F.2d 415, 418 (7th Cir.1956). Neither case supports Fannie
Mae’s position. Bowles is consistent with Higgins. The statute at issue in Bowles
provided that the damages for any violations were to be recovered by the government,
which converts damages into those in the nature of a penalty. Bowles at 428. On the
other hand, Schaefer is simply inapplicable. In that case, the plaintiff shareholder
impermissibly attempted to enforce an Illinois statutory provision against an Iowa
corporation because no Iowa statute penalized the conduct that an Illinois statute
penalized. Schaefer at 416. The facts and issues in Schaefer simply have no relevance
to the facts or issues advanced in the current case. Fannie Mae offered no other analysis
or evidence to demonstrate that any damages awarded pursuant to R.C. 5301.36(C) are in
the nature of a penalty or a fine.
{¶18} The factual underpinnings of the current case are sufficiently similar to
those addressed in Higgins, E.D.Ky. No. 12-cv-183-KKC, 2014 U.S. Dist. LEXIS 43278.
Not only has the Ohio Supreme Court referred to the damages awarded pursuant to R.C.
5301.36(C) as liquidated, and thus compensatory damages, but the damages inure to the
benefit of the individuals aggrieved by Fannie Mae’s failure to timely file the satisfaction
of judgment as mandated by Ohio law. See also Asklar, 95 F.R.D. at 423. More
important, unlike the statute at issue in Higgins, which awarded treble damages and yet
was deemed compensatory in nature, R.C. 5301.36(C) does not award treble or other
presumptively punitive damages.
{¶19} As a result, the result is the same either under Ohio’s interpretation of its
own statute or the federal analysis. R.C. 5301.36(C) awards compensatory damages.
Those damages are not in the nature of a penalty or fine. Therefore, any judgment
awarded by the lower court would not violate any immunity conferred by 12 U.S.C.
4617(j)(4). Any judgment or imposition of damages pursuant to R.C. 5301.36(C) is not
in the nature of a penalty or fine. Therefore, the trial court erred by relying on the
statutory immunity as grounds to dismiss Plaintiffs’ complaint.
{¶20} Finally, in light of the determination that any judgment awarded in the lower
court would not affect the immunity conferred by 12 U.S.C. 4617(j)(4), the court did not
lack jurisdiction to dispose of the merits of the class action complaint. Pursuant to 12
U.S.C. 4635(b), the trial court was divested of jurisdiction to issue any order that affected
the FHFA consent order. Because any damages awarded through a judgment in the
lower court action are not in the nature of a penalty or fine, the court had jurisdiction to
dispose of the merits of all claims and to award damages to Plaintiffs based on Fannie
Mae’s alleged violation of R.C. 5301.36(C). Further, the FHFA consent order itself
contemplated a judgment. It must logically follow that the trial court was not divested of
jurisdiction. Any judgment in the underlying case could not possibly affect a consent
order that specifically contemplated such a judgment being imposed in the first place.
{¶21} Plaintiffs in this case do not otherwise seek relief expressly banned by the
FHFA consent order, or an injunction to prevent its enforcement, or declaratory relief to
have the consent order declared invalid. See Rex v. Chase Home Fin. L.L.C., 905
F.Supp.2d 1111 (C.D.Cal.2012) (deciding that based on a similar federal statutory
scheme, the trial court possessed jurisdiction because the defendants did not provide the
legal authority or evidence to show that the relief in the complaint actually affected a
consent order). Plaintiffs merely seek the resolution of the merits of the class action
claims that have been pending for more than a decade. Resolution of those claims will
not affect or otherwise impede application of the consent order, and therefore, the trial
court was not divested of jurisdiction in the underlying case.
{¶22} For the foregoing reasons, we reverse the decision of the trial court
dismissing all claims based on the lack of subject matter jurisdiction and we remand the
case for further proceedings consistent herein.
It is ordered that appellant recover from appellee costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the common
pleas court to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.
SEAN C. GALLAGHER, PRESIDING JUDGE
KENNETH A. ROCCO, J., and
TIM McCORMACK, J., CONCUR